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January 28, 2005

Krugman On Social Security - Off To The Races

Paul Krugman tackles the subject of race and Social Security with his accustomed blend of civility and honesty, calling the President a bigot and misrepresenting key parts of the debate.

This week, in a closed meeting with African-Americans, Mr. Bush
asserted that Social Security was a bad deal for their race, repeating
his earlier claim that "African-American males die sooner than other
males do, which means the system is inherently unfair to a certain
group of people." In other words, blacks don't live long enough to
collect their fair share of benefits.

This isn't a new argument; privatizers have been making it for
years. But the claim that blacks get a bad deal from Social Security is
false. And Mr. Bush's use of that false argument is doubly shameful,
because he's exploiting the tragedy of high black mortality for
political gain instead of treating it as a problem we should solve.

Let's start with the facts. Mr. Bush's argument goes back at least
seven years, to a report issued by the Heritage Foundation - a report
so badly misleading that the deputy chief actuary (now the chief
actuary) of the Social Security Administration wrote a memo pointing
out "major errors in the methodology." That's actuary-speak for "damned
lies."

In fact, the actuary said, "careful research reflecting actual work
histories for workers by race indicate that the nonwhite population
actually enjoys the same or better expected rates of return from Social
Security" as whites.

Really? That was the actuary summarizing a backward looking study, since the excerpt continues with an admonition to "See Duggan, et. al., "The Returns Paid to Early Social Security Cohorts," Contemporary Policy Issues, (October), pp. 1-13." Here is a good summary of the discussion prepared by the AARP (which also mentions Duggan). The gist - once the disability component is factored in, blacks have done roughly as well as whites with Social Security.

But the privatizers aren't talking about changing the disability part of the plan, now are they? In fact, as the Times reported, it is far from clear how disability might be changed, if at all, if personal accounts are adopted. So if we limit ourselves to what the President was actually talking about, which was the Social Security retirement plan, the lower life expectancy of blacks reduces their return.

In any case, the Social Security actuary had a bit more to say about this, which Prof. Krugman must have overlooked:

...with proper adjustment with mortality by income level, race differentials in life expectancy would diminish greatly, for individuals at the same income levels.

Without appropriate adjustment of mortality by income, race-differentials in rates of return are highly misleading. This is the reason that the Office of the Chief Actuary, Social Security Administration has not as yet developed race-specific money's worth ratios or rates of return.

I will grant that race may be an important proxy for income and marital status (a point made by the AARP summary), so that in a more elaborate analysis, the independent effect of race might be quite small. However, as of 1998, the Chief Actuary had not actually done the analysis.

How do these race-based subtleties fare in Krugman's explanation? Not well:

Here's why. First, Mr. Bush's remarks on African-Americans perpetuate a
crude misunderstanding about what life expectancy means. It's true that
the current life expectancy for black males at birth is only 68.8 years
- but that doesn't mean that a black man who has worked all his life
can expect to die after collecting only a few years' worth of Social
Security benefits. Blacks' low life expectancy is largely due to high
death rates in childhood and young adulthood. African-American men who
make it to age 65 can expect to live, and collect benefits, for an
additional 14.6 years - not that far short of the 16.6-year figure for
white men.

Yes, the life-expectancy at birth is not useful. However, the life-expectancy at age 65 is also misleading, since it overlooks the many folks who pay taxes for a lifetime and then die before retirement. The reduced life expectancy of black males at age 20 (who have survived the childhood issues and can now look forward to a lifetime of Social Security taxes) is also relevant - at age 20, the gap relative to white males is about 5 years. [MORE: Jim Glass is, as usual, quite insightful on this point. Clearly, I let Krugman off easy on this.]

Second, the formula determining Social Security benefits is
progressive: it provides more benefits, as a percentage of earnings, to
low-income workers than to high-income workers. Since African-Americans
are paid much less, on average, than whites, this works to their
advantage.

True, but... is Social Security progressive? The program combines a regressive payroll tax on the front with a progressive benefits scheme at the back. On net, is it progressive?

And I will tell you why I wonder. Normally, to compare cash flows at different points in time economists use a discount rate. Since the cash flows in Social Security come from the government, one might discount them using a risk free government rate. However, the risk free rate scarcely represents the opportunity cost of funds of a low-income worker - someone who is maxed out on their 18% credit card, paying 12% on a car loan, and is getting red-lined for a home mortgage is probably not thinking about a risk-free rate of 3 to 5%.

On the other hand, for a high income worker who has sufficient savings to have accumulated some financial assets, discounting Social Security inflows and outflows at the rate associated with Treasury investments may be perfectly reasonable.

So, if the "right" discount rate falls as income rises, it may be the case that Social Security loses its progressivity. Has the research been done? Probably. Have I found it? Not yet...

Back to Krugman:

Finally, Social Security isn't just a retirement program; it's also a
disability insurance program. And blacks are much more likely than
whites to receive disability benefits.

True, but so what? Substituting inheritable personal accounts for a portion of the retirement benefit does not require a change in the disability benefit.

So the claim that Social Security is unfair to blacks is just false.
And the fact that privatizers keep making that claim, after their
calculations have repeatedly been shown to be wrong, is yet another
indicator of the fundamental dishonesty of their sales pitch.

Hmm. My opinion is that deliberately mischaracterizing your opponent's position is fundamentally dishonest. None of the research suggests that the retirement component of Social Security is a good deal for blacks. From which it follows that a reform which adds personal accounts without reducing disability benefits should be good for blacks. (Fine, but is it fair to presume that *someone* must be getting less if blacks are getting more? Don't vex me.)

MORE: As you read through the Heritage back-and-forth, here is a personal challenge - see if you can refrain from laughing out loud when you see how the critics tackle the question of transition costs.

TrackBack

» Black Lies? from Discriminations.us
A few days ago I discussed a suggestion by House Ways and Means Chairman Bill Thomas that blacks, because of their higher mortality rates, were short-changed by social security (and an inane response from Meet The Press host Tim Russert).... [Read More]

» SS Social Security Redux from In the Agora
This Paul Krugman column was the subject of much discussion here yesterday. Tom Maguire offers a healthy, smart response in detail to Krugman. Good post.... [Read More]

Tracked on January 29, 2005 at 11:44 AM

» SS Social Security Redux from In the Agora
This Paul Krugman column was the subject of much discussion here yesterday. Tom Maguire offers a healthy, smart response in detail to Krugman. It's a great post, and I highly recommend it to those interested in OASDI.... [Read More]

Tracked on January 29, 2005 at 11:47 AM

Comments

I sent these numbers along to Don Luskin, but I thought people here might be interested, too.

Using the U.S. Life Tables, 2002 (http://www.cdc.gov/nchs/data/dvs/life2002.pdf), I calculated the following probabilities:
Probability of living to age 65, given you're 25 years old now:
white males: 82%
black males: 68%
white females: 89%
black females: 80%

This isn't a matter of life expectancy, but survival probability. I picked age 25, as that seemed a reasonable age to pick for one's first "real" job, i.e., something where you're going to be hit with those payroll taxes.

How about survival probabilities at later ages?
Probability of living to age 80, given you're now age 55:
White Males: 51%
Black Males: 37%
White Females: 64%
Black Females: 54%

See a pattern here? By the way, these are the latest life tables from the National Center for Health Statistics (under the Dept of Health and Human Services). The survival stats for earlier generations were, most likely, worse.

And Krugman's talk of improving health care... actually, I'm not sure that disparate health care is fully to blame for the gap. I would think white men and white women probably get the same quality health care in old age... and the women still pull ahead. There are certain conditions that different ethnic groups are more likely to suffer - such as sickle cell anemia among blacks or Tay-Sachs among European Jews. I believe that black men are especially more likely to suffer hypertension, which might account for their horrid old-age survival probabilities.

In any case, perhaps one shouldn't look at life expectancies, but the actual, full distribution of deaths in each population. Life expectancies can hide things like short or long tails in distribution of deaths.

Still, look at survival probabilities. They'll tell more of the story.

I have not delved into the arcania of Social Security as much as you, TM, but your post raises a question -- what is Social Secutity disability insurance going to cost in a system where retirement benefits are derived from account balances? They will no longer be funded out of the payroll tax, so I guess this becomes a "transition cost"?

Why isn't disability benefits part of social security privatized. Private insurance is available and far cheaper than the 16% the government charges in wages. If the government were concerned about disability it would make the requirements transparent and clear for all and force insurance companies to come up with four or five options that were exactly identical to allow comparison shopping.

Krugman was at his disingenious best, or worst, in this on. We might even say he crossed the boundary line from disingenuousness to outright, er, fibbing.

Three points for starters:

First, Krugman says no blacks die between young adulthood and age 65, during the taxpaying years.

"Blacks' low life expectancy is largely due to high death rates in childhood and young adulthood."

Well, the NHCS data say that among those alive at age five only 3% die during the next 25 years of childhood and young adulthood, by age 30 -- but among those alive at age 40, the middle of the taxpaying years, 30% die by age 65.

So the risk of death after age 40 after paying most of a lifetime of employment taxes, but before getting to collect any of them is 10 times larger than dying from age 5 to 30. (And it is 77% greater than for whites.)

Krugman claimed exactly the opposite. He li^h^h fibbed.

(And he really is too cute doing it -- of course the death of a 6-year-old has a greater effect on average black life expectancy than the death of a 60-year old. But it is irrelevant for our purpose -- it is the percentage of deaths among older workers, that have less effect on life expectancy, but which follow a whole lot of tax payments, that count.)

Second, re the quote of the SS chief actuary:

"careful research reflecting actual work histories for workers by race indicate that the nonwhite population actually enjoys the same or better expected rates of return from Social Security as whites"

You don't have to be one of the world's great social scientists to realize that "nonwhite population" does not equal "African-American population".

Now, the 1994 Social Security Advisory Commission explicity asked the actuaries to develop this data for blacks -- and they refused.

Some of the Commission members concluded this intransigence resulted from institutional self-defense -- because the numbers wouldn't have made SS look very good.

Since then, the actuaries still haven't presented these numbers so far as I know -- they've just criticized others who have tried, and at places like AARP we get statments like "this suggests" and so on ... but no actual numbers from the actuaries, such as they have developed for other groups.

Third, I also enjoy this conceit by Krugman...

"... the formula determining Social Security benefits is progressive: it provides more benefits, as a percentage of earnings, to low-income workers than to high-income workers. Since African-Americans are paid much less, on average, than whites, this works to their advantage."

Well the actuaries did produce return-on-contribution numbers for low-wage workers for the '94 Commission.

Here they are for lifetime benefits and lifetime taxes, in 1994 dollars for workers entering the labor force in 1994:

males -- low wage: taxes $39,024; benefits $38,004; net - 2.6%

And these benefits are themselves 30% underfunded -- so if the funding gap is closed by "modestly" raising taxes or cutting benefits, as Krugman wants, knock that return down another 30%.

Yeah, Social Security is progressive. It benefits today's low-wage workers by making them poorer.

There's other things that bother me about Krugman's column that people haven't mentioned.

Krugman cites 3 things: (1) black life-expectancy isn't all far that short of white life-expectancy; (2) blacks are poorer and benefit from the program's progressivity; and (3) blacks get more in disability payments.

Therefore: "Put it all together, and the deal African-Americans get from Social Security turns out, according to various calculations, to be either about the same as that for whites or somewhat better."

Everyone else is questioning Krugman on (1) but what about (2) and (3)?

To get those disability payments (3), don't you have to be disabled - and then in considering your "deal," don't you have to factor in the negative utility of that? Krugman is essentially making it out to be a positive thing to be recieving money under this program. Maybe it is - maybe the whole thing is just a scam, and most people recieiving "disability" payments are out on the golf course or somesuch. But I'd like to see some evidence....

And to get the more progressive benefit scheme (2), you have to be poorer. I always thought the economic idea behind the progressivity of social security is that to make the "true" (utility or benefit-based) returns of people in different social classes "equal," progressivity is required. Just as with the disutility of being disabled, isn't Krugman ignoring the disutility of being (relatively) poor? It seems to me that what needs to be actuarily compared is blacks vs. everyone else within social classes.

And with respect to (1), Krugman says "let's start with the facts," but spends most of his column rehashing various characterizations of the facts, and his only real fact is the 2 year differential in life-expectancy at age 65. I guess what I don't understand is, and what I have never understood, is what is the point of hiring a top-notch economist to write columns for you if this is the kind of facts they come up with - it seems to me that any old NYT columnist might have cited this one, given how little it tells us. (And I guess Jim Glass's facts, if correct, pretty much nail it as not a very helpful fact at all).

Finally, I have another point about (2) - it seems to me that when Bush's opponents are attacking his Social Security plans, one of their main points is that privitization will introduce greater risk. But it seems to me that in this area, the current system forces people to accept a huge amount of risk (in terms of the "deal" Krugman is talking about, remember) as far as having to survive to recoup your contributions, and of course, the poor(er) are disproportionately exposed to this risk - especially, of course, in terms of benefit or utility....

FYI, (just because I've been the only person who seems to be addressing this point), for all the folks out there who work all their lives and are in their 50s and have all their kids grown and out on their own and are ready to prepare for their declining years with their mate in the empty home and either pass away or have their spouse pass away, they get a nice fat $255 "death benefit" to show for all their social security payments via payroll taxes all those years.

That's it. Nothing more.
What does the spouse get? Well, if they remarry, they get SQUAT.
If they decide to hang on and live life alone, when they reach 62-67, they'll be eligible for the bennies. So, make sure you don't find someone else, folks, and die alone.....otherwise, all that you paid in goes straight to Uncle Sam.

I'm sure the good Doctor knows that blacks DON'T meet this criteria more than whites (well, except for the data).

Another thing to consider is that, to restore solvency, the most likely benefit cut we'll see is a raise in the age of retirement, with full SS benefits, to 69 or higher. Which will make it even a worse deal for Blacks.

Am I too cryptic even for Buddah? Hard times for a Catholic boy like me.

My guess is that the query is in response to my closing comment: 1

...see if you can refrain from laughing out loud when you see how the critics tackle the question of transition costs.

Briefly, the critics said that in evaluating a transition to private acounts, the Heritage people were ignoring the fact that payroll taxes fund current benefits. How to solve this? In the current debate, the approach is to simply have the government borrow the shortfall, arguing that it will be made up (much) later in reduced benefit outlays.

However, in 1998 the critics of the Heritage study opined that the only reasonable approach was to increase the payroll tax by 5%, so that the payroll tax would be enough to fund both current retirees and establish personal accounts.

Not surprisingly, personal accounts don't look as good when funded this way.

Do you seriously believe the BushAdmin wants to reformulate SS to make it more progressive and equitable across racial differences?

I'd say that the above shows that it isn't too much of a progressive program because of income-differentials in mortality and the regressive manner in which the revenue is raised.

If the regressive nature of SS were the problem then, why would privatization be the natural solution?

Doesn't it seem likely that the BushAdmin may be trying to divide and conquer by pitting Black vs White with this latest tactic? Don't the previously mentioned problems with privatization in practice still hold validity, with the racial differential being over-stated?

I mean if Krugman erred, was it a serious err? His point that the racial differential is not so great still stands and begs the question of whether this justifies going through with the BushAdmin's plans.

Thank-you for the clarification. Your reference was not exactly talmudic, but I missed it on the rebound. That may be why my less ardent admirers refer to me as DimBulbBuddah. It seems like a tempest in a teapot to me. I tend to side with Brad DeLong on Social Security issues.

In a nutshell, we have a bigger problem with Medicare and the budget deficit then we do with Social Security. I agree with some the Heritage analysis, but don't see eye to eye with them on their solutions. Frankly, I'm surprised that Bush is still going forward with personal accounts and I understand why he's trying to sell his idea before he reveals his plan. Gonna be a whole lot of fit hitting the shan when the details come out.

As a Bush 41 fiscal conservative, I don't see how Bush 43 is going to resolve the contradiction between extending tax cuts, cutting Social Security to fund personal accounts and not cutting government spending. The educated guesses I've seen say Bush is only proposing in the neighborhood of $10 billion in overall cuts in his 2005 budget.

The dispute over whether the trust fund is an asset or a liability aside, the bottom line is that Bush's plan will probably not do anything to address the Social Security unfunded liability. He's simply shifting money from one pocket to another pocket. As far as I can tell the unfunded liability is still an unfunded liability. I don't see Bush's plan being any more then an ideological punt that won't go anywhere, but may be part of a larger big picture strategy.

I don't see Bush's plan being any more then an ideological punt that won't go anywhere, but may be part of a larger big picture strategy.

That was my view a month ago; at this point, I am taking them seriously that they mean to get a bill, but I still don't see how they manage it.

Doesn't it seem likely that the BushAdmin may be trying to divide and conquer by pitting Black vs White with this latest tactic?

Well, they are going to try and pick up some black Congressman and see if that puts any pressure on some Dem Senators. Basically, on Social Security (as with school reform and gay marriage) the Black Caucus is being asked by the Dems to take one for the team.

Basically, on Social Security (as with school reform and gay marriage) the Black Caucus is being asked by the Dems to take one for the team.

That's an interesting take Tom. How is the Black Congressional Caucus taking one for the team? As far as I can tell, they are not all that impressed with either Bush's arguments or his outreach to the black community. If Charlie Rangel or Maxine Waters were convinced that Bush's secret plan would benefit their constituents, somehow I don't think they would be bashful about expressing their point of view.

The American Prospect posted a commentary titled "Another Mistaken Racial Stereotype" a couple of days ago that essentially agrees with Krugman. I don't see this argument carrying much more than minor symbolic weight in either direction. But then, I never have been a big believer in identity politics.

I'd be very surprised if Social Security became the type of controversy in the black community that school reform and gay marriage are. Larry Elder likes to push them as talking points with his audience, but I'm not persuaded the BCC has had to pay a price on those issues either.

"So if we limit ourselves to what the President was actually talking about, which was the Social Security retirement plan, the lower life expectancy of blacks reduces their return."

Can you provide a link to President Bush's plan (or what he was talking about) in which he specifically excludes any reference to disability (or survivor benefits)? Namely, I am looking for the portions of his plan which indicates that he has decided to leave untouched any social security benefits relating to disability (for example).

2. You say:

"From which it follows that a reform which adds personal accounts without reducing disability benefits should be good for blacks."

Can you please provide a link to any unchallenged studies that show this to be the case? In fact the AARP study you link to says the following:
"Those who suggest, as the Beach and Davis Heritage Foundation studies have, that minorities will benefit more from a privatized Social Security than from the present system tend to ignore several important factors. They do not adjust the presumed higher returns from equity investment for the increased risk they carry, they tend to ignore increased administrative costs, they generally ignore transition costs, and they overlook the generally high aversion to risk which characterizes most Americans' attitudes toward investment. Given the opportunity, most Americans choose fairly conservative investments. Recent research has shown that such investment strategies could yield poorer, and certainly riskier, results than Social Security provides (Olsen et al., 1998)."

If you are indeed using that file, then the following additional questions become relevant.

2. You state that:
"We find that black males right in the middle of a working life, age 40, have a 30% chance of dying by age 65. (The corresponding chance for white males is 17%.)"

I looked up the Life Tables in the PDF file and I was unable to find this statistic in that file. Can you point me to the page or table or section that contains this information?

What I did find was the following:

(a) Black males, age 40 (page 21, table 8):
Probability of dying at age 40-41 is ~ 4.588%;
Remaining life expectancy is 32.3 years at age 40.
In other words, an average black male of age 40 may expect to live to age 72.3 or so.
(b) White males, age 40 (page 15, table 5):
Probability of dying at age 40-41 is ~ 2.352%;
Remaining life expectancy is 37.1 years at age 40.
In other words, an average white male of age 40 may expect to live to age 77.1 or so.

3. You state that:
"Black males alive at age 5 have only a 3% chance of dying within the next 25 years of their childhood and young adulthood, by age 30. (For white makes the figure is 1.9%)"

Again, perhaps I am looking at the wrong file, but I was unable to find this in the PDF file. What I did find was the following:

(a) At age 5, black males may expect to live another 64.4 years, i.e. to a final age of ~69.4 years (table 8, page 21)
(b) At age 5, white males may expect to live another 70.3 years, i.e., to a final age of ~75.3 years (table 5, page 15)

The way I understand the tables then, at age 5 black males can expect to live up to the age of ~69.4 years (on average). At age 40, black males can expect to live up to the age of ~72.3 years - which represents 3 additional years of life-expectancy compared to a young black male aged 5.

So, based on the tables in the PDF file, I guess I don't quite understand what to make of your statement that:
"So their death rate during their past-age 40 working years is 10 times higher than "the high death rates in childhood and young adulthood" Krugman ascribes to them. And the risk that a black male age 40 will die before reaching the Social Security retirement age of 65 -- after paying most of working life of payroll taxes but still too young to recover any of them -- is 10 times higher than the risk that one will die as a child or young adult age 5 to 30. (And 77% higher than the risk that a white male age 40 will die by age 65.)"

According to PDF file, blacks have a lower risk of dying younger when they are older. Put another way, they have a higher risk of dying younger in their youth (as Krugman has stated).

Additionally, the difference in expected lifetime between black and white males decreases over time. A black male aged 5 may expect to live almost 6 years less than a corresponding white male. However, a black male aged 40 may expect to live only ~4.8 years less than a corresponding white male. At age 65, the gap narrows even more substantially, with an expected final age of (65+14.5=) 79.5 years for a black male and (65+16.3=) 81.3 for a white male --- namely, a gap of just under 2 years. So, it seems Mr. Krugman's comments were broadly correct.

[For the moment I will ignore the issue of black females, which seems to have been left out of the discussion, even though they have a higher life-expectancy than white males.]

Now, note that a death at age, say, one has a hugely greater affect on average life expectancy than a death near age 65 -- but it is the number of the latter-type deaths, which have much less affect on life expectancy, that matter for this issue.

This is why I said before that it is a cute bit of misdirection to manage to get this subject discussed in terms of life expectancy.

But to go beyond that little misdirection and argue...

"Blacks' low life expectancy is largely due to high death rates in childhood and young adulthood therefore they don't have high death rates during their working years (such as 77% higher than whites) which causes them to disproportionately fail to collect SS retirement benefits"

... is plain bulls^H^H disingenuousness.

Blacks' "high death rates in childhood and young adulthood" which do in fact "largely" account for their lower life expectancy are objectively low death rates that are high only relative to the even lower corresponding death rates among whites.

Blacks' death rates during their working years are objectively high -- 10x higher, 77% higher than whites', during the taxpaying years 20 to 65 we see that 34% of black males alive at age 20 die -- and that's what counts for return on SS.

Even though it doesn't count nearly so much in computing average life expectancy.

Now I'm sure that when Krugman said "Blacks' low life expectancy is largely due to high death rates in childhood and young adulthood" he didn't want to give anyone the impresion that they had lower death rates at later ages, during their working years, comparable to whites.

Because (if he's not incompetent) that would be willfully misrepresenting the truth. And what do we call that?

You are interpreting Krugman's statement differently than what he intended and attributing an inference to his statement, that is not what he is trying to say. For instance, in your blog post you say:
"Of course, if blacks die young at a high rate before starting to work, then those who do don't pay any payroll taxes that they fail to recover. Krugman is claiming that this is the case."

I don't interpret Krugman's statement the way you have. What Krugman is saying is that if an African-American lives to age 65, then he has far more years of life left (during which he can draw SS benefits) than one would assume if someone just looked at an African-American's life expectancy at birth or in the early years. Krugman does not talk about survivorship rates - his statements very clearly, focus on life expectancy. You can criticize him for not mentioning survivorship rates, but his inference based on life expectancy is correct.

Secondly, it is true that one needs to factor in survivorship probabilities in the calculation of payments and benefits, but you are making the same mistake that you are accusing Krugman of making. Namely, you are ignoring the very critical issue of life expectancy by focusing solely on the survivorship rates.

"An appropriate method for estimating the expected number of years of retirement for a 20-year-old man must incorporate both the probability of surviving to 65 and the life expectancy for those who reach 65. Since a 20-year-old white man has a 78.1 percent chance of reaching 65, his expected number of retirement years is 12.1 (that is, 0.781 times the 15.5 additional years such a man is expected to live if he reaches 65). The 20-year-old African-American man who has a 60.3 percent probability of surviving until 65 is expected to have 8.1 retirement years (0.603 times 13.5)."

Third, you say in your blog post that:
"And the risk that a black male age 40 will die before reaching the Social Security retirement age of 65 -- after paying most of working life of payroll taxes but still too young to recover any of them -- is 10 times higher than the risk that one will die as a child or young adult age 5 to 30. (And 77% higher than the risk that a white male age 40 will die by age 65.)"

In your comparison of black males and white males here, you are failing to adjust for income levels.

As Kijakazi (CBPP) has pointed out:
"Aside from the rather stereotypical nature of the characteristics selected for these hypothetical workers, the authors fail to separate out the impact of income on longevity (and hence on Social Security benefits) from the impact of race on longevity.
Although the Heritage authors acknowledge that life expectancy varies by income, they make no adjustments for these differences when estimating rates of return. In their critique of the Heritage methodology, the Social Security actuaries state: "Without appropriate adjustment of mortality by income, race-differentials in rates of return are highly misleading."(37)
Stated another way, failing to control for income — that is, failing to compare mortality rates for whites and minorities with the same income levels — exaggerates the impact of race on rates of return. When determining differences in longevity, Heritage failed to compare African-American upper-income, married couples with children to white upper-income, married couples with children. Similarly, it failed to compare single, low-income African-American men and women to single, low-income white men and women.
A study by Duggan, Gillingham, and Greenlees did control for income, among other factors, when calculating rates of return for Social Security retirement and survivors benefits for African-American and white workers.(38) The study used data from 1951 to 1988 on actual workers and retirees, rather than the hypothetical cases Heritage constructed. Contrary to Heritage's claims, the researchers found that African-American workers received slightly higher real rates of return than white workers."

That brings me to the other point that I think you have ignored from Krugman's column. His claim that African Americans do as well as whites (or slightly better) is based not just on retirement benefits but also on survivorship and disability benefits. As he has stated clearly in the same column:
"Second, the formula determining Social Security benefits is progressive: it provides more benefits, as a percentage of earnings, to low-income workers than to high-income workers. Since African-Americans are paid much less, on average, than whites, this works to their advantage.
Finally, Social Security isn't just a retirement program; it's also a disability insurance program. And blacks are much more likely than whites to receive disability benefits.
Put it all together, and the deal African-Americans get from Social Security turns out, according to various calculations, to be either about the same as that for whites or somewhat better."

If you are going to talk about higher death rates for blacks (black males actually since you have not mentioned black females who have better life expectancies than white males), you cannot do so without mentioning what CBPP has clearly pointed out as well. Namely:
"African Americans benefit disproportionately from the disability and survivors components of Social Security. By removing these parts of Social Security from its calculations, Heritage disregards the elements of Social Security most favorable to them."

In summary, the worst that Krugman can be accused of is not mentioning survivorship rates explicitly. But for a person with his knowledge I am more inclined to attribute this to the fact that his column is an op-ed which has a length limitation than some innate desire to distort the facts. I say that because the CBPP and SSA analyses independently validate the overall conclusions that Krugman draws in his column.

"Krugman does not talk about survivorship rates - his statements very clearly, focus on life expectancy. . . .In summary, the worst that Krugman can be accused of is not mentioning survivorship rates explicitly. "

Nonsense. Krugman is disputing the President's statement on mortality:

"African-American males die sooner than other males do, which means the system is inherently unfair to a certain group of people."

Which he characterized (by extension) as "damned lies." He doesn't then get to change the debate to life expectancy, and whack away at strawmen. The President's statement is perfectly correct, and Krugman can rightly be accused of sloppiness or intellectual dishonesty . . . and he doesn't appear to be sloppy.

This argument is also a crock: "Without appropriate adjustment of mortality by income, race-differentials in rates of return are highly misleading." I'm sure the average African American male would be pleased to hear that, yeah, he's far more likely to contribute to SS his entire working life and die before receiving any benefits, but "it's not because you're Black, it's because you're poor." Oh, that's different then, isn't it?

"Since a 20-year-old white man has a 78.1 percent chance of reaching 65, his expected number of retirement years is 12.1 .... The 20-year-old African-American man who has a 60.3 percent probability of surviving until 65 is expected to have 8.1 retirement years (0.603 times 13.5)."

Meaning the Black man has only 2/3 White man's time collecting benefits. That supports W's claim that SS is set up to the disadvantage of Blacks.

The statement you quote:
"African-American males die sooner than other males do, which means the system is inherently unfair to a certain group of people"

...is fundamentally dishonest because it takes a single causal factor and attributes an outcome [a false one at that] as arising solely from that factor.

First, the "system" here refers to Social Security. In my earlier comments I have already provided links to research showing that Social Security overall is NOT "inherently unfair" to African American males. It may be one thing to claim that the retirement provisions of social security are unfair to African American males compared to white males - but it is not OK to claim that the "system" itself in unfair to them.

Second, there is nothing "crock"-worthy about the income argument. The return from social security should have some relationship to the amount paid into it. This does not have to be 1-1. Indeed, because the SS tax itself is regressive, it is good that payments are progressive - i.e., lower income people get paid more than higher-income people. But it is grossly misleading to compare average mortality rates alone without talking about income. If you want to really understand whether the system is fair or not, then compare people of similar incomes across races. It makes no sense to make a fairness argument on benefits obtained without assessing the amounts paid in to the system by the people who are being compared.

Finally, I am actually in favor of more progressivity in social security - to help all low income people regardless of race. I am even happy to help African-Americans a little more considering the long history of racism and segregation and other non-overt, but substantial, forms of racism against them. But I am against the Iraqification of social security using misleading or dishonest arguments aimed at propagandizing in favor of privatization. Privatization is a fake solution to a fake crisis, as Krugman stated succinctly.

I have to say I do find it amusing that conservatives (who are against even minimal Affirmative Action) are claiming to see the "unfairness" of a system to African-Americans. Let me put it bluntly. If Bush is really concerned about unfairness to American Americans then he would show it by pursuing the many areas where the system is far far more unfair to African-Americans (employment, education, criminal justice, voting rights, etc.). Unfortunately, none of those items seem to be in the crosshairs of Bush or other SS privatization advocates. That alone suggests to me that the apparent outrage over the criticism of Bush's motives is without merit.

My resonse to Cecil addresses your comment as well. It is easy to cherry-pick one demographic and use that to generalize about the social security system as a whole. But that is "inherently unfair" as well.

Can you provide a link to President Bush's plan (or what he was talking about) in which he specifically excludes any reference to disability (or survivor benefits)?

Well, I did provide a link to the final report from the 2001 Bush Commission on Soc Sec; they have a section on disability, and say this:

Because of the complexity and sensitivity of the issues involved, we recommend that the President
address the DI program through a separate policy development process.

More from TR:

2. You say:

"From which it follows that a reform which adds personal accounts without reducing disability benefits should be good for blacks."

Can you please provide a link to any unchallenged studies that show this to be the case?

An unchallenged study? How about a study I agree with?

No matter - Bush has spoken favorably of a plan which offer alternatives like those in the Federal ThristSavings Plan. One such investment alternative essentially replicates the Social Security Trust Fund bonds.

So, the risk averse who expect to die young can put their personal account into Government bonds - when they die at 55, their heirs get the account.

Let me put it bluntly. If Bush is really concerned about unfairness to American Americans then he would show it by pursuing the many areas where the system is far far more unfair to African-Americans (employment, education, criminal justice, voting rights, etc.).

Well, it helps that with Social Security the solution to this particular unfairness is simple, and does not penalize anyone else.

Secondly, as to the income argument, I have no reason to doubt that Bush would happilly tout personal accounts as a potential boon to any low-income worker with a lower than average life expectancy.

Would you really be happier if Bush said that Social Security tended to be unfair to lower income groups, and since blacks were over-represented in those groups, it tended to be unfair to them?

(and what is with the high life expectancy of poor Hispanics?)

...the worst that Krugman can be accused of is not mentioning survivorship rates explicitly. But for a person with his knowledge I am more inclined to attribute this to the fact that his column is an op-ed which has a length limitation than some innate desire to distort the facts.

Uh huh. Strange how he always runs out of space just as he gets to the bit that might undermine his exposition.

Let's see - on Social Security alone, he deliberately distorted the legal heft of the Trust Fund. Why? probably because if people realized how little protection the "trust fund" actually provided, they would find personal accounts more appealing. Or maybe he ran out of space.

He also did not have enough space to mention that Clinton, Gore, and yes, even Krugman hyped a Social Security crisis when it was politically convenient in the 90's.

"The statement you quote:
'African-American males die sooner than other males do, which means the system is inherently unfair to a certain group of people'

...is fundamentally dishonest because it takes a single causal factor and attributes an outcome [a false one at that] as arising solely from that factor."

Sorry TR, that's still nonsense. The statement is perfectly clear, and has two clauses. Do you dispute "African-American males die sooner than other males do"? Or that "the [SS] system is inherently unfair to a certain group of people" (those, disproportionately African-American males, who pay into SS but die before receiving benefits)? You apparently don't think that's very important, or that disability makes up for it. I disagree, but even so, the statement is correct, and calling it a lie is a lie.

"If you want to really understand whether the system is fair or not, then compare people of similar incomes across races."

So a social system attempting to address African American concerns need not allow for the fact that they disproportionately make up lower income households? Again, that's not a legitimate argument. Mortality rates matter, and disproportionately affect African Americans. Perhaps it's unavoidable, but it's still a concern. And before slinging more generalized accusations of hypocrisy, you might want to consider that some of us honestly believe the unintended consequences of some of those other programs (e.g., affirmative action, in the absence of actual discrimination) outweigh the benefits.

TR: "Krugman does not talk about survivorship rates - his statements very clearly, focus on life expectancy. You can criticize him for not mentioning survivorship rates, but his inference based on life expectancy is correct."

TR: "It is easy to cherry-pick one demographic and use that to generalize about the social security system as a whole. But that is "inherently unfair" as well."

You took my statement and Krugman's out of context. When I said "inference" I was specifically referring to this point in the comment:
"Krugman is saying is that if an African-American lives to age 65, then he has far more years of life left (during which he can draw SS benefits) than one would assume if someone just looked at an African-American's life expectancy at birth or in the early years."

So, regardless of the insinuation I was not trying to cherry-pick for Krugman or anything else. I already conceded he left out mention of survivorship rates.

Second, Krugman clearly pointed out that his argument included everything that today's SS system provides - not just retirement benefits, but disability and survivorship benefits as well - so he was not cherry-picking life expectancy alone to make his point. Let me reproduce that part of his article again (bold text is my emphasis):

"Finally, Social Security isn't just a retirement program; it's also a disability insurance program. And blacks are much more likely than whites to receive disability benefits. Put it all together, and the deal African-Americans get from Social Security turns out, according to various calculations, to be either about the same as that for whites or somewhat better.""

Unfortunately, I don't have time to respond to all your points about Krugman, but I have bookmarked this link for future reference. As for giving Krugman benefit of the doubt over Bush, I guess we all have our own levels of comfort -- but Krugman has proven right far more often than wrong - and certainly proven right far more often than Bush has. Perhaps we may differ on that assessment as well. I don't expect anyone to be infallible (I certainly am not) but I do expect that the President of the United States is held to a higher standard than an op-ed columnist or an economist. That applies whether the President is a Democrat, Republican or an Independent. (Anyway, I don't want to get into that debate here since that's another topic altogether). But, you are certainly entitled to your views on Krugman and I doubt that anything I say is likely to change that.

What I would like to do therefore, in the time I have tonight, is to respond to the specific points on SS that you have raised in your responses.

1. TM: "Well, I did provide a link to the final report from the 2001 Bush Commission on Soc Sec; they have a section on disability, and say this:
Because of the complexity and sensitivity of the issues involved, we recommend that the President address the DI program through a separate policy development process."

Well, since we are talking about what the President has proposed in Jan 2005, I would like to be sure that his current proposal is actually the same as what his Commission recommended years ago. Things have changed since then - including the Commission's own report, if I remember correctly, after those who subjected it to an analysis (e.g., http://www.brook.edu/views/papers/aaron/20010723.htm) pointed out that it was ridiculously flawed. Also, I want to be sure that this is the President's position considering he hasn't always been in full agreement (at least initially) with the recommendations of other Commissions (e.g., 9/11 Commission). I have not yet seen any quote from the President indicating that he is interested in changing only the retirement portion, leaving the rest of the SS system untouched. Perhaps it my oversight, but if I see something that suggests otherwise I will revisit my view of his "proposal".

2. TM: "Would you really be happier if Bush said that Social Security tended to be unfair to lower income groups, and since blacks were over-represented in those groups, it tended to be unfair to them?"

Cecil: "So a social system attempting to address African American concerns need not allow for the fact that they disproportionately make up lower income households? Again, that's not a legitimate argument. Mortality rates matter, and disproportionately affect African Americans. Perhaps it's unavoidable, but it's still a concern. "

In my opinion Bush is good at talking the talk and saying the "right things", but doing the right things is another subject altogether. I am less interested in what he says than what he actually does. And again, I hold this opinion of all leaders Dem/Rep/Ind - I would like to be able to evaluate them by the effectiveness of their actions and policies, not just the words they say. And when I subject Bush to this test, history has proven repeatedly that he deserves no benefit of doubt.

Second, let's talk about race and addressing the fact that African Americans (you can add Hispanics or anyone else here if you wish) tend to have disproportionately lower income. Cecil's sentiment quoted above is a reasonable one - we should care about the plight of those who tend to earn less. But my argument has nothing against that sentiment. My point is simply this:
Before we formulate policy, let's compare apples with apples to understand what is fair and unfair. Lets not confuse between two issues - the unfairness associated with African Americans having disproportionately lower incomes vs. the unfairness of comparing mortality rates of white males and black males without paying attention to the effect of their incomes on their mortality. Comparing people of two races with the same incomes tells you whether the "system" (SS in this case) treats people with similar incomes fairly or not. The data shows it largely does. I see conservatives routinely argue tax policy using fairness arguments that have nothing to do with race but that have a lot to do with one's income - so I don't know why my point is hard to understand.

The fact that incomes are generally lower for one or more demographics is a separate problem unrelated to social security. In my opinion, the best way to deal with that is to figure out how to correct the structural problems that are preventing them from earning more. Those structural problems (which have to do with pre-tax income) have NOTHING really to do with social security (which is a benefit based on taxes paid) - they have to do with discrimination in areas such as education, healthcare, employment, voting rights, criminal justice, etc. If we are serious about fixing that disparity, the best way to fix it is to figure out how to raise their pre-tax income without subjecting their income to much greater risk than they endure today. The solution is not to take a system that, on the whole treats blacks as well as whites, and modify it catastrophically such that the only system where there is approximate fairness today goes bust (as far as the low-income earners are concerned).

I am not against privatization in general - after all, I am a capitalist who supports free markets. What I am against is the Bush administration's attempts at privatization because history has shown that there is virtually no policy of theirs (which involves the underprivileged or lower income people) where the reality matches their promises. History has also shown privatization has been far less successful than promised (in other countries). Even as an above-average-income investor I have trouble doing enough research to figure out how to maximize my return. On top of that, benefits received will be based on the year I retire - which subjects my kitty to stock market vagaries. To say that privatization would somehow allow low income investors to do much better on average than SS today - without addressing the conditions that prevent them from being more successful in society (including education and investing) and without eliminating all the risks of private investing - is wishful thinking.

Anyway, there's a lot more I can say about privatization and SS but I am out of time - especially considering I've spent far more time on this page than I had planned to. So, at least from my standpoint, further discussion will have to wait for another day.

"Before we formulate policy, let's compare apples with apples to understand what is fair and unfair . . ."

I don't think that's the issue at all. The issue is poisoning the well of political discourse, and the inability to have a civil conversation about a pressing problem. To wit: yelling "liar" at the other side, without having the facts to back it up (aggravated by the fact that it's a sitting President).

The President: "African-American males die sooner than other males do" and "the system is inherently unfair to a certain group of people" (implied: those who die before receiving benefits--disproportionately African American males).

Mr Krugman: "Mr. Bush's argument . . . 'damned lies.'"

Frankly, I also don't find the President's argument very persuasive. His statement is correct, but just isn't very important, taken on balance. (The latter point appears to be the main thrust of your argument.) But that's an entirely different matter from Krugman calling him a liar. Black males do die sooner, and SS isn't fair for those who die before receiving benefits.

". . . Lets not confuse between two issues - the unfairness associated with African Americans having disproportionately lower incomes vs. the unfairness of comparing mortality rates of white males and black males without paying attention to the effect of their incomes on their mortality."

Again, that's not the issue. For a variety of reasons (including income and race) Black males will be far more likely to pay into the system without receiving any benefits. To them, the alternative of a privatized system (and specifically one which may be turned over to their children), may be more attractive. I don't think it's a particularly strong case . . . but neither is it dishonest. Cheers.